By Gareth Jones and Gabriela Baczynska
WARSAW (Reuters) - Polish Prime Minister Donald Tusk began talks on forming a new coalition government Monday after his center-right Civic Platform became the first party to win a second consecutive term since the fall of communism in 1989.
Tusk met President Bronislaw Komorowski and the head of the Peasants' Party, his coalition partner for the last four years, after his pro-business party won 39 percent of the vote in Sunday's election but fell short of an absolute majority.
Investors hailed its victory as a guarantee of political and economic stability in the European Union's largest eastern member in turbulent times, but Fitch ratings agency urged Warsaw to move swiftly to put its public finances in order.
"The election result is a clear sign of political stability and predictability in ... Poland," Komorowski told Reuters by telephone. "This is a sign that Poles want a strong position for Poland as an advocate of deeper European integration."
Poland's main opposition party, Jaroslaw Kaczynski's conservative-nationalist Law and Justice (PiS), whose calls for a tougher Polish stance toward historic foes Germany and Russia had rattled investors, won 30 percent of the vote.
In third place was a new liberal party called Palikot's Support Movement, founded by a vodka tycoon, which won 10 percent with its criticism of the powerful Roman Catholic Church and its advocacy of causes such as gay rights.
Komorowski, a Tusk ally, said he would start formal consultations with party leaders on a new government on Wednesday after the publication of the final election results and hoped to name a new prime minister next week.
A government source, speaking on condition of anonymity, said Tusk met Peasants' Party leader Waldemar Pawlak Monday evening for preliminary discussions.
"A continuation of the Civic Platform-Peasants' Party coalition is our base scenario," a second government source said, adding that it could also turn informally to Palikot's Support Movement for backing on specific issue when needed.
CHURCH CHALLENGED, LEFTIST QUITS
The success of Palikot's Support Movement, led by former Civic Platform lawmaker Janusz Palikot, signaled disaffection among younger voters and a challenge to the authority of the Catholic Church, long seen as a pillar of national identity.
Civic Platform is projected to secure about 206 seats in the 460-member lower chamber, or Sejm. The Peasants' Party, is set to win about 28 seats on 8.4 percent of the vote.
Tusk's party also won a clear victory in the upper chamber, or Senate, where it was projected to win 62 of the 100 seats.
The fifth party to clear the 5 percent threshold to enter the lower chamber, the post-communist Democratic Left Alliance (SLD), performed worse than expected. It won just 8 percent, and its leader Grzegorz Napieralski said he would step down.
The election results pushed the zloty currency to a three-week high against the euro and stocks and bonds also rose on expectations of more privatizations and steady progress on cutting Poland's public debt and large budget deficit.
"The outcome of the elections is good news for investors as pro-market policies are likely to be continued and there should be a solid parliamentarian majority for fiscal reforms," Danske Bank said in a note.
The outgoing coalition has presided over four years of strong economic growth, steering Poland smoothly through the 2008-09 global financial crisis without dipping into recession, although it will be hard to continue such growth.
FOCUS ON REFORMS
Civic Platform has said it will continue cautious reforms aimed at reining in the public debt and budget deficit, expected to reach 53.8 percent and 5.6 percent respectively this year.
It also wants to continue a privatization program set to net 15 billion zlotys ($4 billion) for state coffers in 2011 and to pursue closer ties with Poland's EU partners.
Fitch ratings agency said the new government would struggle to cut the fiscal deficit to below 3 percent of gross domestic product in 2012 as forecast in its draft budget, given a likely scenario of slowing economic growth.
"If it is serious about its ... target, the incoming government will have to implement more drastic fiscal measures. This will likely require further cuts in expenditure," it said.
An adviser to Tusk, Jan Krzysztof Bielecki, said economic growth may slip to 3 percent next year from the 4 percent envisaged in the draft budget.
Civic Platform is one of few ruling parties to hold on to power at the polls in EU member states this year. Power has changed hands in countries including Portugal, Latvia, Denmark and Ireland.
The election result is a personal triumph for Tusk, 54, a pragmatic liberal conservative from near Gdansk on Poland's Baltic coast, who was involved in the Solidarity movement that helped end decades of communist rule.
Tusk, whose country holds the EU presidency until the end of this year, favors closer integration with the rest of the bloc and says joining the euro remains a strategic goal for Poland despite the debt crisis in the euro zone.
He has good personal ties with German Chancellor Angela Merkel and has maintained a cautious rapprochement with Russia, despite strains over a plane crash there last year that killed then-President Lech Kaczynski, Jaroslaw Kaczynski's twin.
(Additional reporting by Chris Borowski and Dagmara Leszkowicz; Editing by Timothy Heritage)